Hedge accounting

12 Months Ended

Dec. 31, 2021

Text Block [Abstract]

Hedge accounting

Note 7 – Hedge accounting

There are three types of hedge relations: Fair value hedge, Cash flow hedge and Hedge of net investment in foreign operations.

In hedge accounting, the groups of risk factors measured by ITAÚ UNIBANCO HOLDING are:

• Interest Rate: Risk of loss in transactions subject to interest rate variations;

• Currency: Risk of loss in transactions subject to foreign exchange variation.

The structure of risk limits is extended to the risk factor level, where specific limits aim at improving the monitoring and understanding process, as well as avoiding concentration of these risks.

The structures designed for interest rate and exchange rate categories take into account total risk when there are compatible hedging instruments. In certain cases, management may decide to hedge a risk for the risk factor term and limit of the hedging instrument.

The other risk factors hedged by the institution are shown in Note 32.

To protect cash flows and fair value of instruments designated as hedged items, ITAÚ UNIBANCO HOLDING uses derivative financial instruments and financial assets. Currently, Futures Contracts, Options, NDF (non deliverable forwards), Forwards, Swaps and Financial Assets are used.

ITAÚ UNIBANCO HOLDING manages risks through the economic relationship between hedging instruments and hedged items, where the expectation is that these instruments will move in opposite directions and in the same proportion, with the purpose of neutralizing risk factors.

The designated coverage ratio is always 100% of the risk factor eligible for coverage. Sources of ineffectiveness are in general related to the counterparty’s credit risk and possible mismatches of terms between the hedging instrument and the hedged item.

a) Cash flow hedge

The cash flow hedge strategies of ITAÚ UNIBANCO HOLDING consist of hedging exposure to variations in cash flows, in interest payment and currency exposure which are attributable to changes in interest rates on recognized and unrecognized assets and liabilities.

ITAÚ UNIBANCO HOLDING applies cash flow hedge strategies as follows:

Interest rate risks:

• Hedge of time deposits and repurchase agreements: to hedge fluctuations in cash flows of interest payments resulting from changes in the DI interest rate, through futures contracts;

• Hedge of asset transactions: to hedge fluctuations in cash flows of interest receipts resulting from changes in the DI rate, through futures contracts;

• Hedge of assets denominated in UF*: to hedge fluctuations in cash flows of interest receipts resulting from changes in the UF*, through swap contracts;

• Hedge of Funding: to hedge fluctuations in cash flows of interest payments resulting from changes in the TPM* rate, through swap contracts;

• Hedge of loan operations: to hedge fluctuations in cash flows of interest receipts resulting from changes in the TPM* rate, through swap contracts;

• Hedge of repurchase agreements: to hedge fluctuations in cash flows of interest received from changes in Selic (benchmark interest rate), through futures contracts;

• Hedging of expected highly probable transactions: to hedge the risk of variation in the amount of the commitments assumed when resulting from variation in the exchange rates.

*UF – Chilean unit of account / TPM – Monetary policy rate

ITAÚ UNIBANCO HOLDING does not use the qualitative method to evaluate the effectiveness or to measure the ineffectiveness of these strategies.

For cash flow hedge strategies, ITAÚ UNIBANCO HOLDING uses the hypothetical derivative method. This method is based on a comparison of the change in the fair value of a hypothetical derivative with terms identical to the critical terms of the variable-rate liability, and this change in the fair value is considered a proxy of the present value of the cumulative change in the future cash flow expected for the hedged liability.

		12/31/2021
		Hedged item										Hedge instrument
		Book Value				Variation in value recognized in Other			Cash flow hedge			Notional		Variation in fair value used to calculate hedge
Strategies	Heading	Assets		Liabilities		comprehensive income			reserve			Amount		ineffectiveness
Interest rate risk
Hedge of deposits and repurchase agreements	Securities purchased under agreements to resell		—		39,142		1,065			1,065			39,136		1,072
Hedge of assets transactions	Loans and lease operations and Securities		8,621		—		(409	)		(409	)		8,213		(409	)
Hedge of asset-backed securities under repurchase agreements	Securities purchased under agreements to resell		40,526		—		(1,686	)		(1,686	)		39,962		(1,698	)
Hedge of loan operations	Loans and lease operations		131		—		—			—			131		1
Hedge of funding	Deposits		—		5,749		30			30			5,779		30
Hedge of assets denominated in UF	Securities		14,558		—		(127	)		(127	)		14,683		(127	)
Foreign exchange risk
Hedge of highly probable forecast transactions			3,508		—		185			740			3,508		185
Total			67,344		44,891		(942	)		(387	)		111,412		(946	)

		12/31/2020
		Hedged item										Hedge instrument
		Book Value				Variation in value recognized in Other			Cash flow hedge			Notional		Variation in fair value used to calculate hedge
Strategies	Heading	Assets		Liabilities		comprehensive income			reserve			Amount		ineffectiveness
Interest rate risk
Hedge of deposits and repurchase agreements	Securities purchased under agreements to resell		—		103,407		(2,423	)		(2,458	)		103,407		(2,429	)
Hedge of assets transactions	Loans and lease operations and Securities		5,673		—		66			66			5,743		66
Hedge of asset-backed securities under repurchase agreements	Securities purchased under agreements to resell		29,533		—		697			697			31,417		699
Hedge of loan operations	Loans and lease operations		327		—		12			12			316		15
Hedge of funding	Deposits		—		2,007		(10	)		(10	)		1,996		(11	)
Hedge of assets denominated in UF	Securities		16,674		—		(4	)		(4	)		16,677		(1	)
Foreign exchange risk
Hedge of highly probable forecast transactions			1,314		—		(105	)		148			1,314		(105	)
Total			53,521		105,414		(1,767	)		(1,549	)		160,870		(1,766	)

For strategies of deposits and repurchase agreements to resell, asset transactions and asset-backed securities under repurchase agreements, the entity frequently reestablishes the coverage ratio, since both the hedged item and the instruments change over time. This occurs because they are portfolio strategies that reflect the risk management strategy guidelines approved in the proper authority level.

The remaining balance in the reserve of cash flow hedge for which the hedge accounting is no longer applied is R$ 555 (R$ 218 at 12/31/2020).

	12/31/2021
	Notional		Book Value (*)				Variations in fair value used to calculate hedge			Variation in value recognized in Other comprehensive			Hedge ineffectiveness recognized in			Amount reclassified from Cash flow hedge
Hedge Instruments	amount		Assets		Liabilities		ineffectiveness			income			income			reserve to income
Interest rate risk
Futures		87,311		144		—		(1,035	)		(1,030	)		(5	)		(13	)
Swap		20,593		5,749		14,688		(96	)		(97	)		1			—
Foreign exchange risk
Futures		3,508		—		3,665		185			185			—			—
Total		111,412		5,893		18,353		(946	)		(942	)		(4	)		(13	)

	12/31/2020
	Notional		Book Value (*)				Variations in fair value used to calculate hedge			Variation in value recognized in Other comprehensive			Hedge ineffectiveness recognized in			Amount reclassified from Cash flow hedge
Hedge Instruments	amount		Assets		Liabilities		ineffectiveness			income			income			reserve to income
Interest rate risk
Futures		140,567		146		—		(1,664	)		(1,660	)		(4	)		(381	)
Swap		18,989		2,007		17,006		3			(2	)		5			—
Foreign exchange risk
Futures		1,314		5		298		(105	)		(105	)		—			—
Total		160,870		2,158		17,304		(1,766	)		(1,767	)		1			(381	)

(*) Amounts recorded under heading Derivatives.

b) Hedge of net investment in foreign operations

ITAÚ UNIBANCO HOLDING’s strategies for net investments in foreign operations consist of hedging the exposure in the functional currency of the foreign operation against the functional currency of head office.

The risk hedged in this type of strategy is the currency risk.

ITAÚ UNIBANCO HOLDING does not use the qualitative method to evaluate the effectiveness or to measure the ineffectiveness of these strategies.

Instead, ITAÚ UNIBANCO HOLDING uses the Dollar Offset Method, which is based on a comparison of the change in fair value (cash flow) of the hedging instrument, attributable to changes in the exchange rate and the gain (loss) arising from variations in exchange rates on the amount of investment abroad designated as the object of the hedge.

	12/31/2021
	Hedged item										Hedge instrument
	Book Value (2)				Variation in value recognized in Other			Foreign currency			Notional		Variation in fair value used to calculate hedge
Strategies	Assets		Liabilities		comprehensive income			convertion reserve			amount		ineffectiveness
Foreign exchange risk
Hedge of net investment in foreign operations (1)		9,646		—		(14,701	)		(14,701	)		13,888		(14,688	)
Total		9,646		—		(14,701	)		(14,701	)		13,888		(14,688	)

	12/31/2020
	Hedged item										Hedge instrument
	Book Value (2)				Variation in value recognized in Other			Foreign currency			Notional		Variation in fair value used to calculate hedge
Strategies	Assets		Liabilities		comprehensive income			convertion reserve			amount		ineffectiveness
Foreign exchange risk
Hedge of net investment in foreign operations (1)		15,277		—		(14,598	)		(14,598	)		24,619		(14,601	)
Total		15,277		—		(14,598	)		(14,598	)		24,619		(14,601	)

(1) Hedge instruments consider the gross tax position.

(2) Amounts recorded under heading Derivatives.

In the period, the amount of R$ 11,752 was reversed from the hedge relationship, which remaining balance in the Foreign currency convertion reserve (Stockholders’ equity) is R$ (6,238), with no effect on the result as foreign investments were maintained.

	12/31/2021
							Variations in fair value used to calculate hedge ineffectiveness			Variation in the value recognized in Other comprehensive income			Hedge ineffectiveness recognized in income			Amount reclassified from foreign currency convertion reserve into income
	Notional amount		Book Value (*)
Hedge instruments			Assets		Liabilities
Foreign exchange risk
Futures		2,126		286		—		(3,252	)		(3,241	)		(11	)		—
Futures / NDF - Non Deliverable		6,000		208		—		(3,502	)		(3,529	)		27			—
Futures / Financial Assets		5,762		6,566		3,653		(7,934	)		(7,931	)		(3	)		—
Total		13,888		7,060		3,653		(14,688	)		(14,701	)		13			—

	12/31/2021
							Variations in fair value used to calculate hedge ineffectiveness			Variation in the value recognized in Other comprehensive income			Hedge ineffectiveness recognized in income			Amount reclassified from foreign currency convertion reserve into income
	Notional amount		Book Value (*)
Hedge instruments			Assets		Liabilities
Foreign exchange risk
Futures		5,052		—		31		(3,844	)		(3,836	)		(8	)		—
Futures / NDF - Non Deliverable		15,196		445		—		(8,006	)		(7,993	)		(13	)		—
Futures / Financial Assets		4,371		4,556		2,762		(2,751	)		(2,769	)		18			—
Total		24,619		5,001		2,793		(14,601	)		(14,598	)		(3	)		—

(*) Amounts recorded under heading Derivatives.

c) Fair value hedge

The fair value hedging strategy of ITAÚ UNIBANCO HOLDING consists of hedging the exposure to variation in fair value on the receipt and payment of interest on recognized assets and liabilities.

ITAÚ UNIBANCO HOLDING applies fair value hedges as follows: Interest rate risk:

• To protect the risk of variation in the fair value of receipt and payment of interest resulting from variations in the fair value of the variable rates involved, by contracting swaps and futures.

ITAÚ UNIBANCO HOLDING does not use the qualitative method to evaluate the effectiveness or to measure the ineffectiveness of these strategies.

Instead, ITAÚ UNIBANCO HOLDING uses the percentage approach and dollar offset method:

• The percentage approach is based on the calculation of change in the fair value of the revised estimate for the hedged position (hedged item) attributable to the protected risk versus the change in the fair value of the derivative hedging instrument.

• The dollar offset method is based on the difference between the variation in the fair value of the hedging instrument and the variation in the fair value of the hedged item attributed to changes in the interest rate.

The effects of hedge accounting on the financial position and performance of ITAÚ UNIBANCO HOLDING are presented below:

	12/31/2021
	Hedge Item											Hedge Instruments (2)
														Variation in fair
									Variation in fair value					value used to
	Book Value (1)				Fair value				recognized in			Notional		calculate hedge
Strategies	Assets		Liabilities		Assets		Liabilities		income			amount		ineffectiveness
Interest rate risk
Hedge of loan operations		8,890		—		8,917		—		27			8,890		(28	)
Hedge of funding		—		11,051		—		10,661		390			11,051		(388	)
Hedge of securities at fair value through other comprehensive income		3,187		—		2,976		—		(211	)		3,220		206
Total		12,077		11,051		11,893		10,661		206			23,161		(210	)

	12/31/2020
	Hedge Item											Hedge Instruments (2)
	Book Value (1)				Fair value				Variation in fair value recognized in income			Notional amount		Variation in fair value used to calculate hedge ineffectiveness
Strategies	Assets		Liabilities		Assets		Liabilities
Interest rate risk
Hedge of loan operations		9,205		—		9,616		—		411			9,205		(423	)
Hedge of funding		—		10,200		—		11,591		(1,391	)		10,200		1,390
Hedge of securities at fair value through other comprehensive income		10,192		—		10,412		—		220			10,383		(226	)
Total		19,397		10,200		20,028		11,591		(760	)		29,788		741

(1) Amounts recorded under heading Deposits, Securities, Funds from Interbank Markets and Loan and Lease Operations.

(2) Comprises the amount of R$ 6,422 (R$ 4,915 at 12/31/2020) related to instruments exposed by the change in reference interest rates - IBORs.

In the period, the amount of R$ 7,976 was reversed from the hedge relationship, which effective portion is R$ 104, with no effect on the result because it is a fair value hedge of securities at fair value through other comprehensive income.

For loan operations strategies, the entity reestablishes the coverage ratio, since both the hedged item and the instruments change over time. This occurs because they are portfolio strategies that reflect the risk management strategy guidelines approved in the proper authority level.

	12/31/2021
	Notional amount		Book value (1)				Variation in fair value used to calculate hedge ineffectiveness			Hedge ineffectiveness recognized in income
Hedge Instruments			Assets		Liabilities
Interest rate risk
Swap		23,161		2		5,428		(210	)		(4	)
Total		23,161		2		5,428		(210	)		(4	)

	12/31/2020
	Notional amount		Book value (1)				Variation in fair value used to calculate hedge ineffectiveness		Hedge ineffectiveness recognized in income
Hedge Instruments			Assets		Liabilities
Interest rate risk
Swap		29,788		2,871		5,812		741		(19	)
Total		29,788		2,871		5,812		741		(19	)

(1) Amounts recorded under heading Derivatives.

The table below presents, for each strategy, the notional amount and the fair value adjustments of hedge instruments and the book value of the hedged item:

	12/31/2021							12/31/2020
	Hedge instruments					Hedged item		Hedge instruments					Hedged item
Strategies	Notional amount		Fair value adjustments			Book Value		Notional amount		Fair value adjustments			Book Value
Hedge of deposits and repurchase agreements		39,136		86			39,142		103,407		158			103,407
Hedge of highly probable forecast transactions		3,508		185			3,508		1,314		(105	)		1,314
Hedge of net investment in foreign operations		13,888		3,407			9,646		24,619		2,208			15,277
Hedge of loan operations (Fair value)		8,890		(28	)		8,890		9,205		(423	)		9,205
Hedge of loan operations (Cash flow)		131		1			131		316		15			327
Hedge of funding (Fair value)		11,051		(388	)		11,051		10,200		1,390			10,200
Hedge of funding (Cash flow)		5,779		30			5,749		1,996		(11	)		2,007
Hedge of assets transactions		8,213		(409	)		8,621		5,743		66			5,673
Hedge of asset-backed securities under repurchase agreements		39,962		50			40,526		31,417		(11	)		29,533
Hedge of assets denominated in UF		14,683		(127	)		14,558		16,677		(1	)		16,674
Hedge of securities at fair value through other comprehensive income		3,220		206			3,187		10,383		(226	)		10,192
Total				3,013							3,060

The table below shows the breakdown by maturity of the hedging strategies:

	12/31/2021
	0-1 ano		1-2 anos		2-3 anos		3-4 anos		4-5 anos		5-10 anos		Acima de 10 anos		Total
Hedge of deposits and repurchase agreements		1,284		9,453		14,221		7,313		5,332		1,533		—		39,136
Hedge of highly probable forecast transactions		3,508		—		—		—		—		—		—		3,508
Hedge of net investment in foreign operations (*)		13,888		—		—		—		—		—		—		13,888
Hedge of loan operations (Fair value)		3,377		1,522		797		838		809		1,547		—		8,890
Hedge of loan operations (Cash flow)		131		—		—		—		—		—		—		131
Hedge of funding (Fair value)		1,206		1,072		302		273		2,920		3,916		1,362		11,051
Hedge of funding (Cash flow)		2,147		3,632		—		—		—		—		—		5,779
Hedge of assets transactions		2,198		—		6,015		—		—		—		—		8,213
Hedge of asset-backed securities under repurchase agreements		2,322		14,963		8,976		13,098		—		603		—		39,962
Hedge of assets denominated in UF		10,148		4,535		—		—		—		—		—		14,683
Hedge of securities at fair value through other comprehensive income		—		453		56		1,692		26		993		—		3,220
Total		40,209		35,630		30,367		23,214		9,087		8,592		1,362		148,461

	12/31/2020
	0-1 year		1-2 years		2-3 years		3-4 years		4-5 years		5-10 years		over 10 years		Total
Hedge of deposits and repurchase agreements		70,200		9,077		13,059		5,504		4,848		719		—		103,407
Hedge of highly probable forecast transactions		1,314		—		—		—		—		—		—		1,314
Hedge of net investment in foreign operations (*)		24,619		—		—		—		—		—		—		24,619
Hedge of loan operations (Fair value)		2,999		1,793		1,297		447		898		1,771		—		9,205
Hedge of loan operations (Cash flow)		212		104		—		—		—		—		—		316
Hedge of funding (Fair value)		213		657		549		176		581		5,448		2,576		10,200
Hedge of funding (Cash flow)		1,765		27		204		—		—		—		—		1,996
Hedge of assets transactions		3,604		2,139		—		—		—		—		—		5,743
Hedge of asset-backed securities under repurchase agreements		22,186		2,297		6,130		—		804		—		—		31,417
Hedge of assets denominated in UF		15,400		1,277		—		—		—		—		—		16,677
Hedge of securities at fair value through other comprehensive income		5,876		1,382		10		—		719		2,396		—		10,383
Total		148,388		18,753		21,249		6,127		7,850		10,334		2,576		215,277

(*) Classified as current, since instruments are frequently renewed.